Context: Recently, Chief Justice of India D Y Chandrachud emphasized the significance of cooperative federalism, highlighting the GST as a prime example. 

• He noted the courts' role in safeguarding states' rights and stressed that federalism should adapt to new challenges like climate change and cyber crime while fostering democracy and constitutional ideals.

Federalism In India

• The Founding Fathers of India established a “Union Constitution” that reflects a federal structure with a strong central government. 

• Federalism in India involves a sharing of power between the central and state governments, where both levels are empowered and co-equal. 

• Dr. Ambedkar emphasized that India’s Constitution defines it as a Union of States, not a loose collection of independent entities.

Co-operative Federalism and GST 

• Cooperative federalism involves the Centre and states working together towards development while acknowledging the importance of both collaborative discussions and “interstitial contestation” between the two levels of government.

• Key institutions like the NITI Aayog, Finance Commission, and GST-Council play crucial roles in policy making and modern federalism in India, underpinned by principles of equity, capacity, stability, and growth. 

• The 101st Amendment, introducing the Goods and Services Tax (GST), marked a significant advancement in cooperative federalism by enabling both the Centre and States to levy taxes on goods and services concurrently, thus maintaining the federal structure.

• This cooperative approach involved the Centre relinquishing exclusive tax powers on manufacturing, while States gave up exclusive sales tax powers, facilitating uniformity in indirect taxation. 

Importance 

• The collaborative effort led to harmonized GST laws, common definitions, procedures, and compliance mechanisms across the country, effectively reducing compartmentalization in taxation.

• Cooperative federalism aspect of GST ensures equal representation of states in decision-making processes, with most GST Council decisions reached by consensus.

• GST significantly contributes to state revenues, with states receiving 100% of the State GST (SGST) collected and approximately 50% of the Integrated GST (IGST).

Issues and Challenges 

• Over time, tensions have emerged, particularly regarding GST compensation and the Council’s decision-making process. 

• States began to express concerns about delayed compensation, especially during the economic downturn caused by the COVID-19 pandemic, leading to accusations against the Centre for insufficient support.

• Opposition-ruled states perceive the GST Council as dominated by the Centre, which holds one-third of the voting power.

Road Ahead

• Healthy federalism requires negotiation and consensus, especially in a diverse country like India.

• GST intends to transform India into a true economic union, with the aim of ‘One Nation, One Tax, One Market’.  

• The GST reform’s success depends on open dialogue and collaborative decision-making.

• The Centre must foster a consultative approach to strengthen fiscal federalism and address emerging conflicts.

• Federalism should be assessed not only on legislative powers but also on its ability to uphold democratic ideals of equality, liberty, dignity, and fraternity.